House prices falling in Auckland, but not everywhere

House prices continued to edge lower in Auckland during the slowest mid-winter month and are cooling in surrounding areas. But prices remained buoyant and activity was robust in some major cities that are still benefiting from the tailwind of Auckland’s boom through 2015 and early 2016.

The outlook for interest rates also moderated through July, and the prospects of a centre-left Government likely to significantly increase housing supply and reduce tax advantages for housing also receded.

Real Estate Institute of New Zealand figures show the house price index for Auckland fell 0.5 percent in June and fell 0.3 across New Zealand. The index for Auckland is down 3.2 percent from its peak in mid 2016. Prices also fell slightly in Taranaki, Northland and Bay of Plenty. The effects of the Reserve Bank’s 40 percent deposit requirement for rental property investors is still rippling through the most highly valued cities in the market.

But prices were particularly buoyant in June in Waikato (up 1.1 percent), Gisborne/Hawkes Bay (up 2.3 percent) and Wellington (up 0.8 percent) as these centres still play catch up on the 60-80 percent price rises seen in Auckland from 2012 to 2016.

The underlying drivers for house prices remained robust. Migration rose to yet another record high of 72,300 in the year to June. Wholesale interest rates edged lower through July as global and local inflation pressures eased. New Zealand’s annual inflation rate fell to 1.7 percent in the June quarter from 2.2 percent in the March quarter and prices were actually flat in the quarter itself.

The Reserve Bank itself is still forecasting that it will not raise the Official Cash Rate until late 2019. Economists had forecast the OCR would start rising in mid 2018, but the weaker than expected June quarter inflation data caused many to think the Reserve Bank’s cautiousness was justified for now.